Chapter 21—The Principal-Broker Relationship: Agency
MULTIPLE CHOICE
1. When creating an agency relationship, agency authority
a.
expects that to become an agent, one must agree to perform and actually be paid for the
performance.
b.
enables the principal to grant property rights to the agent who may convey them to third
parties.
c.
can be conferred by acts of the principal to another party.
d.
is limited to a few acts within a single trade or business.
2. Traditionally, in residential sales, prior to the emphasis on buyer agency, the broker considers the
buyer to be
a.
a client.
b.
a customer.
c.
a principal.
d.
a fiduciary.
3. When a listing is taken, the seller would be referred to as
a.
the customer.
b.
a fiduciary.
c.
the client.
d.
the agent.
4. A property owner wishing to be contacted by persons who want to buy and not by agents who want a
listing, would advertise for
a.
“principals only”.
b.
“customers”.
c.
“clients”.
d.
“third parties”.
5. After an earthquake, a property manager had to meet with insurance adjusters to arrange for repairs to
several properties which she managed. The property owners had given the manager what kind of
agency authority?
a.
Universal
b.
Special
c.
General
d.
Power of Attorney
6. When a broker takes a listing, he is acting under what kind of agency?
a.
General
b.
Special
c.
Ostensible
d.
Implied
7. The least appropriate person to choose which title and escrow company to use in closing a real estate
sale would be
a.
the seller.
b.
the listing agent.
c.
the buyer.
d.
the home builder.
8. All of the following are examples of fiduciary relationships EXCEPT
a.
trustee-beneficiary.
b.
attorney-client.
c.
broker-principal.
d.
grantor-beneficiary.
9. The seller has just informed the listing agent that he does not want the property shown to any Orientals
or other minority buyers. The agent
a.
must obey the request under his fiduciary responsibilities.
b.
may take the listing and show the property to anyone who desires to see it, including any
minorities.
c.
must explain that he cannot take the listing under these circumstances.
d.
may take the listing and hope that no one undesirable turns up.
10. Once a broker has taken a listing, he can do all of the following EXCEPT
a.
allow his sales staff to make an offer on the property without informing the seller of the
identity of the purchasers.
b.
put up a sign.
c.
buy it himself.
d.
stand on the street corners soliciting buyers for the property.
11. The listing salesperson was told by a prospective buyer to present an offer of $150,000 with the
promise that he would increase it to $152,000 if the seller rejected $150,000. The salesperson must
a.
present the offer and disclose the promise to increase the offer.
b.
keep the confidence of his buyer while presenting the $150,000 offer.
c.
refuse to present the offer.
d.
tell her broker of the verbal part of the offer.
12. It is the responsibility of the real estate broker to
a.
submit only those offers that meet the listing price.
b.
decide which offers are in the principal’s best interest.
c.
quote only the listing price, but present all offers.
d.
say whatever is necessary to get an offer.
13. The broker and the seller know of major plumbing repairs needed on the seller’s property. They,
therefore, sell the house to a buyer “as is” but do not disclose plumbing problems. The buyer
discovers the defects after closing and decides to sue the broker and seller. What is the most likely
outcome of this decision?
a.
The broker and the seller will win because of “caveat emptor”
b.
The buyer has no cause because he signed an agreement to purchase “as is”
c.
The buyer can collect because “as is” applies to obvious defects only
d.
The buyer would probably win because the defects should have been disclosed
14. A salesperson received an earnest money check from a buyer on the listing of a co-op broker. What
should the salesperson do with the check?
a.
Deposit it into his client trust account
b.
Sign it and pass it on to the seller
c.
Get it signed by the buyer and the seller and turn it over to his broker
d.
Hold the check until the contract has been signed by all parties
15. A buyer making an offer on a property writes an earnest money check to the broker. The seller will
not be available for 5 days. What should the broker do with the check?
a.
Attach it to the offer in the file
b.
Mail it with the offer to the seller
c.
Hold the check until the contract has been signed by all parties
d.
Hold it until the seller returns home
16. The purpose of a trust account is to
a.
hold money belonging to clients and customers.
b.
assure that a broker can be trusted.
c.
to act as a neutral depository.
d.
convert client’s money to broker’s account.
17. If a real estate agent used clients’ funds for his own personal use, he would be guilty of
a.
commingling.
b.
conversion.
c.
duress.
d.
misrepresentation.
18. If a broker is a little short of funds and “borrows” some money from his escrow account to pay
monthly bills, this activity is called
a.
commingling and is illegal.
b.
conversion and is illegal.
c.
misrepresentation and may be illegal.
d.
shrewd business and is legal.
19. If, in showing a property, the salesperson said, “In my opinion, this house is absolutely the greatest in
the world,” the salesperson
a.
could lose his license for fraud.
b.
is guilty of misrepresentation.
c.
is puffing.
d.
is guilty of redlining.
20. Two buyers purchase a home through a broker. After the close of escrow, the buyers discover a
structural problem with the property, which the seller had not disclosed to anyone, including the
broker. The buyers attempted to rescind their agreement. If they succeed, what commission is the
broker entitled to in this case?
a.
Full commission
b.
Expenses only
c.
None
d.
Full commission minus expenses
21. A dual agency
a.
is unlawful.
b.
is legal but unethical.
c.
must be disclosed to all parties.
d.
requires a permit from the real estate commissioner.
22. Dual agency results when
a.
a broker represents a buyer and writes an offer on his own listing.
b.
a broker presents an offer on any listing.
c.
an outside agent presents an offer on a broker’ listing.
d.
a buyer works with more than one broker.
23. A couple makes an appointment with a broker to look at homes. He has not met them previously.
They decide to make an offer on one of his listings and they all return to the real estate office to write
up the offer. The broker should
a.
keep quiet and hope it is a good offer.
b.
tell the buyer about the dual agency after writing the offer.
c.
tell the buyer about the dual agency before writing the offer.
d.
write the offer.
24. A broker listed a property and in one week found a buyer for the property herself. Under these
circumstances, the broker
a.
may only represent the seller.
b.
may have a dual agency.
c.
may not represent the buyer.
d.
is not required to disclose a dual agency.
25. In most states, the maximum amount a broker may charge a seller is
a.
6%.
b.
7%.
c.
10%.
d.
Any amount agreed to between the seller and the broker.
26. When an agent is given the right to transact all types of matters on behalf of the principal, the agent
serves as a
a.
notary public.
b.
third party.
c.
universal agent.
d.
special agent.
27. Agents who are authorized to bind their employer in a trade or business are
a.
special agents.
b.
general agents.
c.
exclusive agents.
d.
principal agents.
28. An agent’s authority may be granted by
a.
written agreement.
b.
custom in the industry.
c.
both a and b.
d.
neither a nor b.
29. The relationship of a real estate broker to the owner of property listed for sale with the broker is a
a.
general agency.
b.
universal agency.
c.
limited agency.
d.
special agency.
30. When an agent’s authority arises from custom in the industry, it is identified as
a.
implied authority.
b.
ostensible authority.
c.
customary authority.
d.
conventional authority.
TRUE/FALSE
1. The relationship, which is created when one person authorizes another to act on his behalf, is called
ratification.
2. A salesperson who worked as an agent in a broker’s office decided to sell his own home. He placed a
classified ad in the paper for his open house, listing only his own home number. The salesperson’s
actions were against state real estate license law.
3. Two sellers lead a buyer to believe that broker Charlotte is their agent without notifying Charlotte of
the fact. This is an example of express agency.
4. Kitty, a broker, has an option to purchase a residence which the owner has also employed Kitty to sell
for a commission. Before Kitty can exercise the option, she must give notice to the seller that she will
collect two commissions.
5. An investor hires a broker to buy a particular property for him, naming the maximum he will pay. The
broker, however, purchases it for himself at a lower price and then sells it to his client at a higher price
without revealing his involvement. This is an example of illegal secret profits.
6. Shortly after a salesperson listed a property, there was an immediate offer through another broker.
Before the salesperson could present this offer to the seller, he himself had a customer make an offer
on the same property. The salesperson can properly present both offers.
7. A buyer makes an initial deposit of $10,000 to buyer a $400,000 house. The buyer withdraws the offer
before the seller accepts it. The broker should dispose of the buyer’s earnest money by splitting it with
the seller according to the terms of their commission agreement.
8. It might constitute commingling if a buyer’s earnest money check is made out to the sales agent.
9. A listing agent is bound by his fiduciary relationship to be loyal to the seller. With regards to working
with a buyer, the listing salesperson must disclose hidden defects to the buyer.
10. The main problem that can arise with a dual agency is the agent may experience a conflict of interest.
11. The broker writes an offer on one of his own listings. He should inform the buyer that he is an agent
of the seller as well as the buyer prior to closing.
12. A real estate licensee may not work as the agent for both parties in a transaction unless the licensee has
the written consent of both the buyer and the seller to this dual agency.
13. Price fixing and monopolies are prohibited by federal fair housing laws.
14. Errors and omission insurance may cover intentional acts to deceive.
15. An agency relationship may be created by ratification or estoppel.
16. A broker was part owner of an apartment building along with two co-owners. When they decided to
sell the broker was named as the listing agent. The broker thus held an agency by ratification.
17. Brokers have fiduciary responsibilities to third parties with whom they deal.
18. Fiduciary responsibilities of an agent to the principal include faithful performance, loyalty, and
provision of legal advice.
19. Any earnest money deposits paid by the purchaser must be placed in a proper trust account.
20. Brokers can indemnify themselves against legal actions by those with whom they deal by purchasing
errors and omission insurance.
COMPLETION
1. The placing of funds belonging to others in a broker’s personal bank account constitutes
____________________.
2. A broker who misrepresents a property to a prospect may be subject to the loss of rights to a
____________________.
3. The relationship of a sales associate to the employing broker is that of a ____________________
agent.
4. A broker who intentionally misleads a prospect by making an incorrect statement known to be not true
is guilty of ____________________.
5. A broker who intentionally misleads a prospect by making an incorrect statement known to be not true
is subject to license ____________________.
6. Agents who fail to investigate the cause of an apparent underlying defect in a property they are selling
may be found liable for ____________________ damages.
7. Making statements a reasonable person would recognize as non-factual or extravagant is known as
____________________.
8. A person who brings two or more parties together but does not represent either party is known as a
____________________.
9. ____________________ agency is the representation of two or more principals in a transaction by the
same agent.
10. The duty of ____________________ care implies competence and expertise on the part of the broker.
MATCHING
Choose the one most appropriate answer for each.
a.
agent
k.
price fixing
b.
agency by estoppel
l.
principal
c.
boycotting
m.
property report
d.
buyer’s broker
n.
puffing
e.
commingling
o.
sales associate
f.
dual agency
p.
special agency
g.
fiduciary relationship
q.
subagent
h.
implied authority
r.
third parties
i.
middleman
s.
trust account
j.
ostensible authority
t.
universal agency
1. a person who authorizes another to act
2. persons who are not parties to a contract but may be affected by it
3. an agency created for the performance of specific acts only
4. a person who brings two or more parties together but does not assist in conducting negotiations
5. one broker representing two or more parties in a transaction
6. mixing of client’s or customer’s funds with an agent’s personal funds
7. two or more listing brokers agreeing to charge a 7% commission
8. a licensed salesperson or broker who works for a broker
9. agency authority arising from custom, common usage, and conduct of the parties involved
10. a relationship that requires trust, honesty, and exercise of good business judgment
11. a separate account for holding client’s and customer’s money
12. refusing to work with another broker because of an arbitrary set of rules
13. refers to the agency relationship of a broker’s sales associate to the seller
14. a broker employed by and therefore loyal to the buyer
15. government required information that must be given to purchasers in a subdivision
16. the principal gives the agent legal power to transact matters of all types
17. the person empowered to act by and on behalf of the principal
18. an agency relationship created by the conduct of the principal
19. statements a reasonable person would recognize as non-factual or extravagant
20. results when a principal fails to maintain due diligence over her agent and the agent exercises powers
not granted to him
